Is Life Insurance Important?

Thinking about our eventual end is one of the most dreaded activities for the living. That said, it remains an important consideration, particularly if we have loved ones who depend on us. Life insurance is a legal agreement between an individual and an insurer whereby the insurer guarantees to pay out a death benefit to the nominated beneficiaries in the event of the policyholder’s death. According to statistics, only a little over half of all Americans own life insurance, with others citing price, irrelevance, and lack of understanding of the product as obstacles. Nonetheless, life insurance remains an integral financial planning tool that can greatly affect the future security of your family.

Set for Life, or Death

There are two major forms of life insurance available on the market. Term life insurance, as the name suggests, offers coverage for a predetermined period from 10 to 30 years. Term life policies provide a large amount of coverage for a comparatively low premium. Because this insurance only applies for a given amount of time, policies are cheaper when policyholders are young, and prices increase substantially as policyholders age. In addition, insurance companies can choose not to renew coverage at the end of the policy term if the individual has developed a severe medical condition. When life insurance is provided as part of an employee benefits package, it is usually term life insurance.

Permanent life insurance, like term life insurance, entails a death benefit. However, it does not expire as long as the policyholder continues to pay the premiums. Permanent life insurance policies, such as whole life insurance or universal life insurance, come with a cash value or savings component. Each time the policyholder pays their premium, a portion of the payment is converted to a cash value that accumulates over time. When the cash value has reached a significant sum, the policyholder may withdraw the savings or borrow against the insurance policy. The catch of permanent life insurance policies is that policyholders are subject to penalties if they attempt to terminate the policy before the minimum term. Permanent life insurance benefits are usually also lower than that of term life insurance.

There can be many reasons why an individual would consider signing up for a life insurance policy. Perhaps you have young children or a spouse who is not currently working or earning enough to support the household. When you pass away, the life insurance benefit will help to keep your family’s financial situation secure until they can make further arrangements. For someone with a retired spouse, a life insurance policy can provide peace of mind knowing that your partner will be well taken care of when you are not around. If you have a house with a mortgage or a business loan, life insurance can help your loved ones settle any outstanding debts that you leave behind instead of burdening them with extra liabilities. Life insurance policies can similarly help to cover funeral costs, which can be a significant out-of-pocket expense for your beneficiaries. For young people, a permanent life insurance policy could be a great way to save money while maintaining coverage for unexpected eventualities.

Don’t Forget the Fine Print

Everybody is eligible to purchase life insurance, but premiums can range widely based on an individual’s risk level. Insurers estimate your risk level based on numerous variables including your age, gender, current health status, family medical history, and lifestyle choices—like whether you smoke or partake in activities perceived as dangerous. To this end, most insurers expect medical examinations before commencing a life insurance policy, although some policies with much higher premiums do not include this requirement. As the validity of insurance claims is largely open to the insurer’s interpretation, it is essential that individuals read the fine print of their life insurance contracts. There have been many cases whereby insurance companies delay or deny claims based on exclusions such as intoxication, self-inflicted injury, or material misrepresentation. Insurance companies have been known to try ways and means to dismiss claims and prevent having to issue payouts. In circumstances where there is a life insurance dispute, many people have engaged experienced attorneys to contest cases and receive their rightful benefits. When the attorneys successfully secure the life insurance benefits, they can be used to cover the incurred legal fees.

Because we cannot guess what will happen in life, the best we can do is to be prepared. A life insurance policy can help to cover the financial bases for your family should anything untoward happen to you. Life insurance policy premiums are lowest when you sign on at a younger age, therefore it is prudent to start a life insurance policy as soon as you can afford it, especially if it is a permanent policy that can be converted into equity. By planning ahead, we can protect our loved ones from financial stress and live fuller and more peaceful lives together.